Financial Planning

There are many financial decisions that need to be made in a small business and in most cases, they are all left up to the business owner. This can place a great deal of stress on business owners as in many cases small business owners set up a business because they are passionate about their work. It is not until they get into the business that they realise there is so much more to running the business than just doing the job or working ‘IN’ the business. They need to work ‘ON’ the business as well.

Some of the key financial decisions that need to be made involve;

• The business opportunity itself - Know what's going on in the business. There should be no big surprises at the end of the financial year specially where cash flow is concerned. 
  Before you start your business you should conduct market research on your potential industry to make sure that your product or service will be profitable. You'll need to gather information on your market, potential customers and what your cost of production will be.

  Through this process, you may identify other costs to start your business, such as staff or marketing costs. Research each element so you can identify and plan for your costs.

  Market research is a valuable tool for all businesses. Use it to understand your market, including potential customers and their needs. Learn how to research your market, including goods and services, customers and your competitors. Refer to how to research your market.

• Cost of resources to run the business - It's a good idea to make sure you to be able to cover 6 months’ worth of running costs up front when you are starting a business.

  Running costs are the day-to-day expenses associated with operating your business. It is the amount of money you will regularly spend on things such as wages, rent and buying stock.

• Monitoring working capital - As a small business owner, it is advisable that you monitor cash flow in order to increase business revenue. Without proper cash flow, it would be difficult to pay your employees, pay suppliers and even manage business overheads. 

  The working capital ratio is also known as the 'current ratio', and is one of the best known measures of financial strength. It shows how much money you have available to meet creditors' demands. You can use this ratio to establish whether your business has enough current assets to pay its current debts, with a margin of safety for unforeseen losses, such as reduced stock levels or hard-to-collect debts.

• Debt collection - Debtors are people or businesses who owe you money. Proper management of your debtors will help you get paid faster and prevent bad debts. Prompt collection of debtors' accounts will also help you maintain a healthy cash flow. 

  Managing debtors is often referred to as credit management, and includes; collecting debts on time, setting credit limits and payment terms, making credit applications and credit checks, enforcing a clear credit policy, and considering debtor finance.

• Borrowing money/Capital raising - Decide if you need to apply for a business loan or raise capital by other means such as borrowing from friends or family, investors, small business grants from government, self funding. 

  For an existing business, cash flow is one of the most common reasons businesses seek finance. But before you do, carefully analyse your cash flow to decide on how much is required, can you afford to pay it back. Some of the finance options include; overdraft facility, line of credit, fully drawn advance, factoring, invoice financing, loan/cash flow, lending, trade credit from suppliers, credit card (be careful – they should fund very short-term working capital needs).

• Tax considerations - Understanding tax requirements ensures your business is taxed correctly and avoids penalties. Knowing what records need to be kept to meet your tax and superannuation obligations. Learning how to lodge tax returns and/or Business Activity statements correctly. Hire an accountant, and let an accountant keep your books on track, handle payroll, and make sure that your business gets every possible tax deduction applicable. An accountant can make sure that your business financial decisions are in line with all of the federal and state laws. 

• Financial planning for annual budgets - Financial planning is the process of determining a business' financial needs or goals for the future and the means to achieve them. It involves deciding what investments and activities would be most appropriate under various economic circumstances. Planning and budgeting are both important to the stability and growth of a business. But they don’t exist in a vacuum. These two pieces must be closely aligned and reviewed both separately and together for a company to successfully reach the next level in its growth. Your budget is your planned income and spending. It helps you to allocate funds for particular items and activities (needs). Your financial plan provides forecasts of future needs. Forecasts help to plan more accurate budgets.

• Identifying risk factors associated with spending - Understanding the risks associated with investing in any area of the business. For example spending on new equipment that may or may not improve productivity, or moving to larger premises with an increase in rental costs and increase in stored goods but not showing an increase in sales. 

• Where to spend money and where to hold back - Identifying improvements required to increase performance and profitability and selecting the vital areas to invest capital. And, obviously, unforeseen circumstances may require additional expenses. Analyse any 'over budget' expenses and decide what should be done and how much to spend.

• Return on investment (ROI) forecasting - Return on investment (ROI) is a financial ratio used to calculate the benefit an investor will receive in relation to their investment cost. It is most commonly measured as net income divided by the original capital cost of the investment. The higher the ratio, the greater the benefit earned.

For more information on financial decisions relating to starting a small business, refer to starting a business.

Identifying required financial information and specialist services, to manage your business as required and to generate or operate the business profitably, is important. This information aids your business and financial plans.

Some of the financial information that you may require, includes;

If you have any uncertainty about how to develop or implement business and financial plans, or are uncertain about how and what records should be prepared, kept, and provided to relevant stake holders,  or unsure about monitoring business performance, you should seek assistance from specialist services or seek professional advice from experts.

If you choose to use a professional to do your accounts, the financial professionals to consider using include:

• Accountant – can help with your business’ financial needs including preparing financial statements, managing your tax and providing financial and business advice.

• Bookkeeper – can keep track of your day-to-day financial transactions, look after your banking, chase overdue payments, pay wages and prepare some financial statements.

• Business activity statement (BAS) agent – can help you prepare and lodge your BAS to make sure you get it right. They're registered professionals who are specialists in their field.

Remember that even if you have a professional look after your books or accounts, you’re still responsible for any financial decisions and are answerable to stakeholders. 

Some other specialist services that could assist a business owner, include;

• Business brokers - Also called business transfer agents, or intermediaries, assist buyers and sellers of privately held businesses in the buying and selling process.

• Business consultants - A small business consultant works with their client on strategy, planning and problem solving, and helps a client develop business skills and knowledge.

• Government agencies - Any federal and state departments that support small businesses, business owners and employees. Such as Australian Taxation Office, Fairwork Ombudsman, WorkCover and WorkSafe, Small Business Commissions.

• Industry/trade associations - For example Fitness Australia.

• Lawyers and providers of legal advice.

• Mentors - The primary role of the mentor is to provide business support, assistance and encouragement to small business owners who need some help to turn their dreams into reality. There are private mentoring services and government programs, for example the Victorian State government runs a small business mentoring program.

• Online gateways - For example payment gateways such as PayPal, ecommerce sites such as ebay and etsy, and web services, and cloud storage.

• Providers of training in accounting and business management software. 

For useful information about Australian business services compiled by business.gov.au, refer to services and advisors.

Small businesses need to carefully determine when they require a consultant or other specialist services. If you decide to use a specialist, make sure that you;

• Are clear about the type of advice you are seeking.

• Use an initial visit to find a specialist who you get along with and who speaks in a way you can understand.

• Determine that they have the appropriate qualifications and experience.

• Establish that they are a member of their professional body.

• Ask for their fees to be quoted up front in writing, be clear about any additional charges they may have.

• Obtain several quotes from several specialists in the field.

• Ask questions.

• Consider price as an important factor, but do not use it as the deciding factor.

When you are establishing your budget, especially in the start-up phase, you will need to make realistic assumptions about your business.

There are a number of questions that need to be asked, and considered including;

• How much product can be sold in per year?

• How much will sales grow in the subsequent years?

• How will you price the products and services you are selling?

• How much will it cost to produce your product?

• How much inventory will you need?

• What will your operating expenses be?

• How many employees will you need?

• How much will you pay them?

• How much will you pay yourself?

• What benefits will you offer?

• What will your payroll and unemployment taxes be?

• What will the income tax rate be?

• Will your business be an S corporation or a C corporation?

• What will your facilities needs be?

• How much will it cost you in rent or debt service for these facilities?

• What equipment will be needed to start the business?

• How much will it cost?

• Will there be additional equipment needs in subsequent years?

• What payment terms will you offer customers if you will sell on credit?

• What payment terms will your suppliers give you?

• How much will you need to borrow?

• What will the collateral be? What will the interest rate be?

A financial budget can be created manually or with a budgeting computer software.

When creating your first budget, manually or by using a software, it is recommended you consult with your Accountant or CPA. Their role will be determined by the in-house resources accessible to you and your previous experience in and understanding of finance. 

Refer to How-to-create-a-budget. Information provided by business.gov.au

Business capital is money that is used for investment in a business or company. Business capital is the support for success in any business. If a company has access to required business capital, then that company has an abundant advantage in the business world.

A bank is one of the most popular ways to obtain money. Banks generally provide good terms for their borrowers and are the most common lenders. 

There are many other different alternative sources of business capital. It is a very difficult task to find the right lender if you don’t know what you are looking for. As there are so many alternative funding solutions, some business owners could feel like it is impossible to find and decide on the right source of capital for their business. 
    
Some of the options for financial backers may include:
•    Financiers/banks/lending institutions.
•    Leasing and hire purchase financiers.
•    Providers of venture capital.
•    Shareholders/partners/owners/family/friends.

How Much Capital Do  You Need?
The fact is that no new business can succeed without a comprehensive and thorough business plan that recognises where you are today, where you want to be tomorrow, what difficulties might present themselves in front of you, and how you are going to work through and solve them. The significance of having a business plan in place is that you are forced to think about your potential business critically, challenge your expectations, and research when you're not sure of your facts. A comprehensive plan identifies and calculates the capital that is likely to be required to reach break-even and beyond. It is absolutely essential when soliciting investors. To calculate your business' break even point refer to break even point.

Despite the fact that planning is often tiresome and time consuming, implementing a plan can mean several different things for businesses;

• It will provide better understanding of your competitors and the marketplace demand.

• It will help you avoid and eliminate future costly disastrous mistakes.

• It will provide a realistic outlook of the capital needed for your business to start and continue to operate until it can support itself.

In addition, potential investors and bankers generally evaluate businesspersons, and the potential of their ability to deliver success and returns on investment, on the quality and comprehensiveness of their business plan. 

The most indefensible mistake a business owner can make when starting out and pursuing capital is to ask for not enough money to support a chance at success. Lacking adequate capital when starting up a business, is like a long journey with a broken-down vehicle, empty pockets and a half-tank of gas. Reaching your destination is very unlikely with these odds.

The best way to estimate the capital that you will need is to plan for everything, is to cost twice as much, and understand that it will take twice as long then you expect.

How Do You Raise Capital?
Generally when starting a business, startup capital is provided by the business owner. This could be a credit card, home equity loan or a loan from family members. Or there may be some federal or state government grants available for startup businesses that you can apply for. When all of these options are exhausted, or they may be unavailable for some reason, capital may be sourced from private investors such as commercial and investment banks, wealthy individuals, or venture capital funds. 

This video provides five practical ways of raising capital for your business.

The recommended investment is commonly styled in the form of debt, equity, or sometimes a combination of each:

• Debt - It is the most common form of capital used by startup businesses. It is protected by the assets of the company, which could include the possible personal guarantee of the owners. As time goes by, the business will pay back the principal owed with interest from cash flow. If the business fails, the lenders will foreclose and liquidate the assets of the business for repayment, possibly seeking any shortfall from the owners. Asset lenders are concerned with the market value of the assets, not the business enterprise, lending only a proportion of the asset's value to the company in order to ensure repayment. Creditors are not normally in the business of taking risks. While the interest rate on borrowed money may be high, using debt allows you to maintain 100% ownership. 

• Equity - When utilising equity, investors become owners of the business with the entrepreneur, the amount of ownership held by each is dependent upon a negotiation, which in turn is based upon the funds invested and the agreed-upon value of the business (as it is at present, and as it may be in the future). Business valuation is an art, not a science; the conclusion is always subjective depending upon the perspective of the evaluator. Business owners typically want as much money as possible for as little equity as acceptable; investors are the opposite, wanting as much investment as possible for as little money as possible. The final equity proportions and the amount of money raised is generally a compromise based on the willingness of the investor to invest and the desperation of the business owner looking for money.

For more information on debt vs equity refer to Sources-of-finance-debt-vs-equity.

How To Negotiate A Win-Win Agreement
When we look at negotiations for funding of a business, whether for a startup or an ongoing operation of an existing business, it will generally consist of two parties; the investor and the owner. In some circumstances, there may be a single investor and in others there may be various different financiers. In the latter case, such as a crowdfunding event, the investors participate as a unit, each sharing a proportion of the same investment.

In some instances, funding is take-it-or-leave-it; in others, there is an intense negotiation. In each case, the parties strive to reach a mutual agreement that achieves all of their respective goals. Negotiations and discussions between investors and business owners are comprehensive and primarily involve, as a minimum, the following factors;

• The Amount of Capital Invested. Funding may be a single value or a combination of investments over a defined period.

• The Timing of the Investment. A definite sum is invested initially with future investments made on specific future dates or when certain contingencies have been met.

• The Return on Investment. In debt "returns", or from the company's perspective "cost", may be expressed as interest with particular payment periods and principal amortisation. In equity, the return is the proportionate share of future earnings directed to the investor.

• The Timing of the Return to the Investor. Prospective payments in the future will be discounted to reflect the investor's opportunity costs and the risk-free return which he/she would have otherwise earned by forgoing the investment.

• The Certainty of the Return. Since the return on capital will be in the future, investors are naturally concerned about the likelihood the projected results becoming reality. This "risk" increase is directly proportional to the period between investment and projected return, the size of the return relative to the investment, and the reliability of the underlying financial and operating assumptions.

• Control. Who makes decisions when things don't go as planned? Investors usually require certain protections to minimise losses or to maximise gains when possible, including majority ownership of the company if certain events occur. Business owners generally resist direct intervention into company operations, viewing it as a challenge to their authority and capabilities.

The ability to negotiate is a skill that can be learned and practiced to perfection. When negotiating for the first time, it is advisable that you seek advice and assistance from a professional before you make an agreement that you will regret. 

What is a financial plan?
A financial plan is simply an overview of your current business financials and projections for growth. Think of any documents that represent your current monetary situation as a snapshot of the health of your business and the projections being your future expectations. 

The components of a financial plan include;

• Forecasted Revenue.

• Cost of Goods Sold.

• Annual Maintenance, Repair and Overhaul.

• Asset Depreciation.

• Tax.

• Inflation.

• Product Price Increase.

• Funding.

Documents and information included in a financial plan could be;

• Analysis of sales by product/service, identifying where they were sold and to whom.

• Cash flow estimates for each forward period (forecasting).

• Current financial state of the enterprise (or owner/operator).

• Estimates of profit and loss projections for each forward period.

• Financial performance to date (if applicable).

• Likely return on investment (ROI).

• Monthly, quarterly or annual returns.

• Non-recurrent assets calculations.

• Profit, turnover, capital and equity targets.

• Projected profit targets, pricing strategies, margins.

• Projections of likely financial results (budgeting).

• Projections, which may vary depending on the importance of such information and the stage in the life of the business.

• Resources required to implement the proposed marketing and production strategies (staff, materials, plant and equipment).

• Review of financial inputs required (sources and forms of finance).

• Risks and measures to manage or minimise risks.

• Working, fixed, debt, and equity capital.

• Working in conjunction with external consultants e.g. Investment analysts, accountants, financiers.

To begin your financial plan refer to Prepare your finances. Information and advice compiled by business.gov.au

Assessment of the financial plan is often required to either fine-tune the strategies, or to change direction based on the previous monitoring indications or analysis.

Assessment and modification can be for one or a combination of factors, including;

• Inappropriate initial budgeting/planning requirements. For example - budgets set too high or low which are soon shown to be unrealistic.

• Poor management practices. For example - poor monitoring, so a negative result is now unavoidable.

• Unforeseen changes in market place. For example - new technological improvements to a product range, political instability, unexpected weather conditions.

Revisions/modifications usually requires the appropriate management level to put forward a case for the revision to occur. Negotiations will take place in order to gain authorisation for revisions.  This may include looking at;

• Proposed trends.

• Budgetary/financial extensions.

• Historical data of previous situations.

• Competitors/market place information.

• Strategies and alternative plans/budgets.

Negotiating potential Budget modifications before the issue becomes too great, and preparing potential solutions to the problem, is the key to ensuring a positive reception. 

Consider the following example…

Managers need to know their financials. Manager A has just joined business Z after the previous manager went on long service leave to South America. Manager A found themselves in a situation where expenses were rising, sales had dropped and the bottom had fallen out of profitability. The business desperately needed a new strategy to get them back on track to achieve budget.

Manager A flagged their concerns with senior management and prepared a potential solution to the challenge the business was facing that would hopefully translate into a more profitable business.

Understanding the 6:1:5 rule Manager A proposed the following:
•    Improve sales by 6%
•    Increase margin by 1%
•    Decrease business expenses by 5% of sales

Manager A provided the following profit and loss statement to illustrate the strategy
(Note the changes in red)

This example shows a 62% increase in profit just by increasing Sales 6%, increasing Margin 1% and reducing Costs 5%.  

On the strength of these figures you would imagine, with evidence of sound action plans to make the proposed changes, that senior management would endorse the plan.

The ability to realign actual performance with budgeted targets relies upon the swift identification of deviations and even swifter corrective action. 

In the example, we illustrated a potential strategy to boost the flagging profitability of business Z.

One of the keys to this strategy is the need to respond in a timely fashion so that any negative impacts already incurred do not compound into greater problems. 

Taking the time to ensure the endorsement of plans, to take corrective action, ensures the support of senior management and may attract additional support from other sources.

Waiting to see, holding your breath, or wishing a problem will right itself, is a poor way to deal with budget deviation which is a normal part of the business and nothing to be afraid of. 

When documenting plans, in any situation, it is vital to also prepare a contingency plan.  Contingency plans deal with the ‘what if’ scenarios.  With no crystal balls handy, it can be difficult to prepare for every scenario, however, understanding what could go wrong assists in the contingency planning process.

In recent times there have been a number of ‘extreme situations’ affecting businesses. At the time, for many businesses, there were no contingencies in place. With the benefit of  hindsight, plans and processes can now exist to limit the effect, or increase the recovery, in some of these extreme situations.  

Some examples of these situations include but are not limited to;

• Global economic crisis. For example, the Global Financial Crisis (GFC) of 2007-2009.

• Terrorism. For example, 9/11.

• Natural disasters. For example bush fires, hurricanes, viral pandemics.

• Climate change. For example, disruptions in trade or services due to extreme temperatures, droughts or flooding, or rising sea levels.

• Extreme price rises or falls during a mining boom, dot com bubble, or digital currency trading. For example,  the mining boom in Western Australia and Queensland.

Many businesses fail to make contingency plans as it is seen as unpredictable or ‘counter’ cyclical to all the other initiatives in the business which are predicted on the ‘status quo’.  Essentially meaning that all other plans are based on what has occurred in the past and based on proven theories.

Contingency planning competes for the same resources in the business, such as time and money, without any visible return on that investment, unless something goes wrong and the plan can be executed.  However, pending disasters do occur and an organisation without a contingency plan is far more likely to suffer greater damage and take longer to recover than one with a well thought out plan.

There are costs associated with a ‘no response’ plan but also with the opposite, an ‘over responsive’ plan. The key is to get the risk assessment right, balance the investment in the recovery plan against the potential cost and likelihood of the disaster

A good example of both was the responses to the Y2K (Year 2000) issue. This issue was a potential programming problem in worldwide computer software which was sensitive to the “00-99” yy fields in Date sensitive programs. So 99 (being the year 1999) would potentially become 00 and not 2000 as required. Businesses response to this potential disaster covered the whole spectrum. Many businesses and some countries (e.g. China) largely ignored the issue. Other businesses and some countries (e.g. USA and Australia) became obsessed with the issue. This over reaction was mainly in the area of legal compliance in the event of a major supply chain failure. Both responses proved to be wrong. The 'disaster' did not eventuate, but some companies did experience problems which could have been avoided. On balance, it is arguable that the whole Y2K issue did little to support the argument for organisations to develop contingency plans for extreme situations but there is no doubt 9/11, the GFC, and hurricane Katrina had the exact opposite effect.

So where do these events place contingency planning within the business environment? Just as an emergency plan prepares the business to respond coherently to an unplanned event, it can also be seen as the Plan B when expected results fail to materialise.

The process of developing a plan involves the convening of a team representing all areas of the organisation. The task of this cross-functional team is to identify;

• The nature of the extreme situation.

• The potential risk involved.

• The likely impact on the business and it's customer base.

• The costs associated with the plans implementation.

• A recovery plan.

The process of developing a contingency plan will require, as do all business projects, its own budget and a critical path with defined milestones. A critical path will;

• List all the activities of the plan.

• Establish the interdependencies of each activity.

• Determine the resources and time required for each activity.

• Determine the sequences of each activity.

• Track and test the progress of the plans development.

The contingency planning team should not only involve all areas of the business but be driven by representation from the senior management team. The team should also have a good cross section of ‘diverse’ thinkers. The need for a ‘whole’ brain approach is critical to the development of a successful plan.

The nature of the plan will be to test the business plan assumptions, and this will involve the testing of the labour market strategy which underpins the business plan.

More often than not the contingency plan will be about external factors, but not always. A contingency plan is just as valid for unplanned events within the business. One of these events could be rapid unplanned growth. Labour strategies should be able to address both contingencies. i.e. rapid growth or rapid contraction. Such as an event taking place that requires acting on a contingency plan. That event may cause loss of revenue or the event may create a demand for the products or services your business provides creating substantial unforeseen growth that you will need to manage. The development of a flexible labour structure is an excellent platform on which to build a responsive contingency to either of these events (rapid growth or rapid contraction).

A simple contingency plan for minor disruptions to operations could look like this;

Contingency plans can contain very simple instructions (as the example above), or they can contain specific, detailed, and/or technical instructions. But all contingency plans must never be over complicated that they are never implemented when the need arises.

Monitoring and maintaining financial records is a vital part of monitoring business performance. Financial performance can be monitored by collating data and generating reports on key financial performance indicators, including;

Record keeping is essential for planning and managing of your business. Correct and up-to-date financial daily records provide the required information for managing the company efficiently and making comprehensive choices.

To correctly maintain daily financial records, this should be considered;

• Establish a record keeping system (manual or electronic).

• Business transactions to be recorded accurately and promptly.

• At the end of each month, a summary account should be prepared (including income and expenditure).

To be able to maintain good financial records, it all starts with a sound system and well-organised business records. It does not need to be a very complicated system; it can be very simple.  

Use available digital technologies to regularly monitor and report on financial performance targets, and analyse data to establish extent to which the financial plan has been met.

Accounting systems should be regularly reviewed and appraised to ensure;

• Information being provided is accurate and timely.

• Policies and procedures are providing for efficiency within the system.

• The system is enabling compliance with legislative requirements.

• The organisation’s assets are being protected.

When an accounting system is reviewed, changes are often recommended to bring about more efficiency. You may find that, the review uncovers some employees that are not complying with the stated policies and procedures, in other cases you may find the policies and procedures that are in place are causing difficulties within the system. 

System reviews should be a continual informal activity within an organisation. The organisation should also conduct a formal review every year or two. These reviews should; 

• Ensure that the system is providing its stated objectives.

• Ensure the system supports staff.

• Ensure transparency of operations.

• Ensure procedures are and can be followed.

• Provide accountability.

• Protect sensitive and vital information.

• Examine performance.

• Identify any additional resources required.

• Identify if the systems should be adapted to meet organisational change.

The review should involve the organisation’s accountant, bookkeeper and owner as they are the most knowledgeable and skilled in the organisation’s systems and will be able to act collectively in a consultative manner to enact improvements.

You will also need to ensure that the review is documented thoroughly. Documentation must show;

• When the review was done.

• Who undertook the review.

• Recommendations suggested.

• Action plan to consider recommendations.

• Implementation details of accepted recommendations.

When a review of the accounting system identifies issues that need improvement, solutions should be explored and tested before they are implemented. In most circumstances, it will not be possible to make changes immediately. Often the changes will need to be prioritised and implemented as soon as the organisation can viably do so. This will be determined by the urgency of the required improvement, the overall effect on the whole system and who will implement the changes. This may be performed by employees within the organisation, or an external expert may be hired.

It is important to ensure that agreed targets and measurable outcomes are applied to all factors recorded in your business and marketing plan allowing for monitoring and assessing for success or the need for improvement. 

The purpose of collecting marketing performance data as well as meeting budget and baseline needs of the business, is to perform an in-depth monitoring and recording process to advise on the total success of marketing activities within an the organisation, and to assess what is causing an impact to the bottom line (negatively or positively), and potential methods for dealing with each of these deviations. Monitoring and documentation should be a planned and ongoing strategic process.

Aspects of marketing performance that may need to be monitored in order to assess performance outcomes may include;

• Budget compliance.

• Target group saturation.

• Target group knowledge.

• Product sales.

• Brand awareness.

• Marketing activities completed. 

• Number of leads generated.

In order to measure performance, the business' marketing goals must be clearly defined. Marketing activities should be created and set following the constraints of the SMART acronym to ensure that they are Specific, Measurable, Achievable, Realistic and Timely. This will enable your marketing team to work in a consistent and confident manner, sure of what they need to be doing at all times and also aware of their own performance, in relation to specific targets and timeframes. 

Qualitative and quantitative information related to marketing performance will need to be collected and collated throughout each sales budgeting period.  Information will need to be collected regarding the performance of marketing personnel and activities in relation to their measurable outcomes, or targets for each period. The information will need to be collected from a variety of different sources in order to gain a full picture of marketing performance. 

Data may be collected from;

• Financial information.

• Sales forecasts.

• Past Budgets.

• Customer satisfaction reports.

• Performance evaluations.

• Training and developmental activities attended.

• Feedback from colleagues.

• Customer Surveys.

It will be necessary to monitor the marketing revenue that has been generated by your marketing plan and the actual costs of performing those tasks against the marketing plan budget and record, and analyse any variations. This will assist in determining the factors that are causing any variation in estimated allowances, as well as identifying which marketing activities are producing the greatest revenue.

Forecasts are created as accurately as possible based on a set of known factors such as historical and current data, external information, assumptions and known variables. Forecasted marketing revenue and costs will be used to create a marketing budget. Marketing budgets should regularly be reviewed in line with actual performance and other sources of information in order to determine any variations.

Even though marketing budgets will have been carefully created based on a series of data, there are many factors that may cause variation in the actual performance of marketing activities and departments. Environmental factors change, performance levels change and costs may be higher than first assessed.  Because of this it is necessary to conduct reviews on forecasted outcomes against actual outcomes throughout the life of the marketing budget to ensure that the budget and the marketing activities are performing as they should be. 

If the marketing budget comes back from review with a significant and unexpected deviation then there are two likely outcomes, they are;

1. The budget may need adjusting due to new figures or and may just need re-alignment.

2. Performance or allocated costs of a particular area may be changing due to a variety of factors and may need to be addressed to ensure that budgeted objectives can be met.

There are a variety of investigations that can be conducted in order to determine the cause of any variation or performance. 

Undertake a review of the following factors of marketing performance;

• Quality.

• Cost.

• Resource usage.

• Timelines.

• Overall successes.

• Possible issues.

• Revenue generated.

• Budget accuracy.

• Environmental factors.

What should you consider during the review?

• Is the forecast accurate to what conditions were or does new information need to be added?

• Be objective, describe the current status and quality of the marketing performance in objective terms and then focus on any needed improvements.

• Document practices and procedures that lead to success in similar situations and apply them to this forecast.

• Look with hindsight and pay attention to the previous unknowns and re-evaluate these issues now.

• Be future focused the purpose of the review is to improve the future success of all tasks.

• Look at both the negatives and positives to get a full picture of the current situation.

It is important to undertake research and identify new and emerging digital technologies to support the financial management of your business. Your business plan should have outlined the new technologies identified at the time, as well as a review date or timeline included. This is to ensure you remain up-to-date with the most current technologies, evaluate technologies already in use, and reassess budget. You should also have allocated a certain amount in your budget for upgrading equipment and technologies.

Some examples of financial management technologies are;

• Payroll software (integrated with personal smart phone apps).

• Comprehensive accounting software.

• Share digital files with your bookkeeper or accountant.

• Use an online invoicing service.

• Use online budget tracking.

• Use sites or apps to file taxes.

• Predictive analytics software that uses algorithms to execute forward-looking analysis – especially routine financial forecasts.

• Comprehensive financial management systems (e.g. Oracle)

It is also important to identify opportunities to implement new technologies to boost business profitability by increasing productivity. Better and more efficient office equipment is constantly being released on the market. Replacing old equipment may result in greater efficiency and lower operating costs.

Some examples of beneficial technologies include;

• Intranet for local file/information sharing.

• Cloud based sharing of files and data.

• Time tracking software.

• Email management systems.

• Digital filing systems.

• Use project management and task management tools.

• Dedicated virtual assistants that enable clients/users to interact directly with data using voice or text queries.

• Selling your products online via websites, social media etc.

• Online business training tools.

• Remote desktop applications.

• Setup for webinars and teleconferences.

As we have discussed, technology makes things quicker and easier and costs less than additional staff, so staying ahead of the pack in relation to upgrading technologies is vital in any business. 

When you are researching for new technologies or equipment, make sure;

• Information found is accurate.

• Information is up-to-date.

• You compare brands/prices/quality/reliable support.

• Where possible seek alternatives to big brand names.

• Where possible seek assistance from others and get feedback from other users.

Remember, whilst there is an initial outlay for new technology, if it minimises time and worker numbers, then you will increase your profitability. And the benefits often outweigh the short-lived challenges of the transitional phase, once new systems are in place.